Bridging Finance Inc.’s majority owner, Jenny Coco, allegedly used investor funds to secure a large construction loan for her luxury apartment project with developer Sam Mizrahi, according to a lawsuit filed in a Ontario court.
Ms. Coco and Mr. Mizrahi is co-owner of an ambitious apartment development, known as The One, in Toronto’s exclusive Yorkville neighborhood. Legal documents claim that around 2016, they were looking for funding to get the project up and running and approached China-East Resources Import & Export Co., or CERIECO, a state-owned Chinese company.
CERIECO eventually agreed to promote a $ 213 million loan, but only after Ms. Coco arranged for Bridging Finance’s flagship investor fund, the Bridging Income Fund, to act as one of several guarantors, CERIECO claims in the lawsuit. The loan has now defaulted, CERIECO claims.
CERIECO also claims that the name Bridging Finance, as well as Ms. Coco’s family business at the time, the Coco Paving Group, was removed from certain versions of the warranty. They were instead referred to as “confidential guarantors”, and the signature pages of the contract were also removed, the lawsuit claims.
Natasha Sharpe, Bridging’s co-owner and former CEO, reportedly signed the document naming the Bridging Income Fund as a guarantor.
None of CERIECO’s allegations have been proven in court. However, if a court agrees that the fund was a guarantor, it could mean that Bridging is liable to cover the loan, resulting in even greater losses for its 26,000 mainly retail investors.
The alleged warranty also further intertwines Mr. Mizrahi, a well-known developer, entered the Bridging affair, which has shaken Bay Street and raised questions about what revelations, if any, were given to investors.
As a private lender, Bridging provided short-term loans to high-risk borrowers, and by early 2021, Bridging’s debt funds had attracted $ 2.09 billion in assets under management.
Bridging, however, was put under the control of a court-appointed trustee in April 2021, after the Ontario Securities Commission discovered several problem loans and claimed to be inappropriate. Curator, PricewaterhouseCoopers LLP, was hoping to sell the company to new owners, but a sales process yielded unsatisfactory bids because Bridging’s loan portfolio is in disarray.
In a report to investors, PwC claimed a lack of appropriate corporate governance, including Bridging’s failure to deal with conflicts of interest, inconsistent and often ineffective loan management practices, and lack of proper recognition and account for loans that were unlikely to be fully repaid.
PwC is now winding down Bridging’s business. In February, the recipient estimated that investors could lose $ 1.3 billion, or 62 percent, of their assets. However, this projection did not take into account the alleged loan guarantee because its existence was not published in court until the end of May.
The lawsuit alleges that when CERIECO agreed to lend to Mr. Mizrahi and Ms. Coco’s Yorkville apartment project, set the strict terms, including a requirement that any third-party loan guarantees should come from units worth at least twice the loan size.
Ms. Coco and Mr. Mizrahi pledged both their personal business as security, but Coco Paving Inc. did not meet the requirement. To add an extra backstop, Ms. Coco for the Bridging Income Fund to act as an additional guarantor, CERIECO claims in the lawsuit.
The lawsuit alleges that Mr. Mizrahi, Ms. Coco and an intermediary who allegedly helped secure the loan, Bosco Chan, have committed fraud, conspiracy and breach of fiduciary duty. CERIECO says that Mr. Chan is at the heart of the alleged fraud and he acted unlawfully on behalf of the lender, releasing Bridging and Coco from their guarantees without CERIECO’s knowledge.
The Chinese lender is also requesting a court-ordered investigation into the case, which will include an independent inspector with the power to investigate, among others, Coco Pavings and several of Mr. Conditions of Mizrahi’s companies.
Bridging is not a named defendant in the lawsuit, and it is possible that Mr Mizrahi and Mrs Coco have funds available to repay the loan.
Ms. Coco did not return requests for comment. Natasha Sharpe and David Sharpe, who took over from Ms. Sharpe as Bridging’s CEO in late 2016, and who is her husband, both declined to comment through their respective spokesmen.
In March, the OSC made formal allegations against Sharpes as well as against Bridging’s former chief compliance officer, Andrew Mushore, alleging that the trio had committed fraud against investors. Among other things, the regulator is asking for fines of up to $ 1 million for each alleged breach of securities law. To date, no formal allegations have been made against Mrs Coco.
CERIECO’s allegations are not the first time that questions about Bridging’s ties to Mr. Mizrahi, the property developer who collaborated with Ms. Coco on The One Development.
In February, The Globe and Mail reported that one of Bridging’s worst performing loans was granted to Mr. Mizrahi, and that the bad debt has been disappearing on Bridging’s books for a decade. The loan was granted in support of another apartment development located at 181 Davenport Rd., Also in Toronto’s exclusive Yorkville neighborhood.
The loan was one of the first Bridging ever taken out and it has been in default since 2018. Mr. Mizrahi’s 181 Davenport project was due to be completed in the fall of 2016, according to lawsuits, but for reasons unknown, the last unit of the project was sold four years later in July 2020.
There is no evidence in the public register that Bridging, who was known to use the courts to prosecute debtors in default, made an effort to recover the Mizrahi debt through lawsuits.
Ms. Coco is Bridging’s majority owner, and she sat on the credit committee that approved the loan. 181 The Davenport loan raised several questions about Bridging’s revelations to investors and alleged conflicts of interest.
CERIECO’s claims reinforce these questions because it appears that investors were unaware of the loan guarantee.
In a statement to The Globe, PwC said it was aware of CERIECO’s allegations but declined to comment further.
CERIECO has resorted to suing Ms. Coco and Mr. Mizrahi because the Chinese lender says it only recently discovered that Coco Paving and Bridging had been released from their loan guarantees. After investigating the case, CERIECO claims to have discovered that an unauthorized officer allegedly signed documents terminating the warranties.
The lawsuit claims that Long Hai Wang, president of CERIECO China, was originally supposed to be the sole director of the Canadian subsidiary, which postponed the loan to The One, but CERIECO was informed that it would be beneficial to appoint a Canadian resident as another Manager. Listening to this advice, the firm says it appointed Bosco Chan, a Chinese and Canadian citizen living in Ottawa, as another director. Mr. Chan was the middleman who helped mediate the loan.
CERIECO claims that it contained a statute in the loan document stipulating “written contracts, documents or instruments requiring the company’s signature may only be signed on behalf of the company by Mr. Long Hai Wang.”
Despite this, the Chinese lender claims that Bosco Chan swapped guarantors in exchange for a $ 7.5 million “release fee” to be paid from Coco Paving to CERIECO.
In the end, “none of the alleged cash consideration for the release was paid to CERIECO,” the lawsuit claims. Mr. Chan allegedly admitted to CERIECO that he accepted a personal payment of $ 4.5 million and instructed an additional $ 3 million to be paid to Mr. Mizrahi’s personal account.
It is unclear when Mr. Chan is alleged to have told CERIECO about these actions. Lawyers for the Chinese lender declined to comment, and Mr. Chan did not return a request for comment. Mr. Mizrahi also did not respond to questions from The Globe.
The One skyscraper is expected to be 85 storeys high, making it one of the tallest condominium towers in Canada, but the project is long overdue. Apple Inc., which was to be a tenant in the retail trade, has sued to terminate its lease because the project missed several deadlines. Apple is “deeply disappointed with Mizrahi,” the company wrote in a January lawsuit.
In response, Mr. Mizrahi claimed that events beyond his control, including COVID-19 and work disruptions, caused the delays.
Since 2014, Ms. Coco contributed $ 30 million in equity to the project and borrowed The One $ 90 million. Her family business, Coco Paving, was recently sold to waste manager GFL Environmental Ltd. for an undisclosed amount.
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